Zurich Ins. Co. v. Northbrook Excess and Surplus Ins. Co.

• Decision Date: 27 May 1986
• Docket Number: 84-2009,Nos. 84-1548,s. 84-1548
• Citation: 98 Ill.Dec. 512,494 N.E.2d 634,145 Ill.App.3d 175
• Parties: , 98 Ill.Dec. 512 ZURICH INSURANCE COMPANY, Plaintiff-Appellee, v. NORTHBROOK EXCESS AND SURPLUS INSURANCE COMPANY, Intervening Plaintiff- Appellee, v. RAYMARK INDUSTRIES, INC. a foreign corporation, Commercial Union Insurance Company, Globe Indemnity Company, American Home Assurance Company, First State Insurance Company and American Centennial Insurance Company, Defendants- Appellees, and Federal Insurance Company, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 634

494 N.E.2d 634

145 Ill.App.3d 175, 98 Ill.Dec. 512

ZURICH INSURANCE COMPANY, Plaintiff-Appellee, v. NORTHBROOK EXCESS AND SURPLUS INSURANCE COMPANY, Intervening Plaintiff- Appellee, v. RAYMARK INDUSTRIES, INC. a foreign corporation, Commercial

Union Insurance Company, Globe Indemnity Company, American

Home Assurance Company, First State Insurance Company and

American Centennial Insurance Company, Defendants- Appellees,

and

Federal Insurance Company, Defendant-Appellant.

Nos. 84-1548, 84-2009.

Appellate Court of Illinois,

First District, First Division.

May 27, 1986.

Rehearing Denied July 1, 1986.

Peterson, Ross, Schloerb & Seidel (Robert G. Schloerb, Michael M. Lane and Richard R. Ryan, Chicago, and White & Case, New York City, of counsel), for Federal Ins. Co.

Jacobs, Williams & Montgomery, Ltd. (Barry L. Kroll, Anthony P. Katauskas and Lloyd E. Williams, Jr., Chicago, of counsel), for Commercial Union Ins. Co.

Baker & McKenzie, Chicago, for Globe Indem. Co.

Dowd & Dowd (Michael E. Dowd, Nancy J. Gleason and Philip J. McGuire, Chicago, of counsel), for Northbrook Excess & Surplus Ins. Co.

Phelan, Pope & John, Ltd. (Peter C. John and Mary Patricia Benz, Chicago, of counsel), for Zurich Ins. Co.

Pretzel & Stouffer, Chtd., Chicago, for American Home Assur. Co.

Rooks, Pitts, Fullagar & Poust, Chicago, for First State Ins. Co.

Bell, Boyd & Lloyd (Frank K. Heap, D. Daniel Barr, Charles T. Martin, Jeffrey A. Blevins, Joan S. Kato, Sally M. Green, P. Andrew Fleming and Harry D. Day, Chicago, of counsel), for Raymark Industries, Inc. McDermott, Will & Emery (Theodore A. Groenke and Walter M. Jones, Chicago, and Drinker, Biddle & Reath, Washington, D.C., of counsel), for American Motorist Ins. Co. and American Mfg. Mut. Ins. Co.

Reuben & Proctor (Gary M. Elden, Philip C. Stahl, Donald A. Vogelsang, Irving C. Faber and Richard A. Epstein, Chicago, of counsel), for Fireman's Fund Ins. Co.

Haskell & Perrin (Donald M. Haskell, Michael J. Sehr and Dion J. Sartorio, Chicago, of counsel), for Home Ins. Co.

Keck, Mahin & Cate (James T. Otis, Robert A. Creamer, Robert C. Gislason and Patty J. Dyer, Chicago, of counsel), for U.S. Gypsum Co.

Dinsmore & Shohl (Gerald V. Weigle, Jr., Joanne B. Grossman, Thomas W. Hardin and Christopher M. Nalley, Cincinnati, Ohio, of counsel), for Liberty Mut. Ins. Co.

Presiding Justice BUCKLEY delivered the opinion of the court:

The present consolidated appeals arise out of a declaratory judgment action brought to determine the rights and obligations of various insurers to provide defense and indemnity in thousands of lawsuits involving asbestos-related claims filed against the insured, Raymark Industries, Inc. The trial court entered an order determining that insurance coverage for asbestos-related claims is triggered both by exposure to asbestos and by the manifestation of asbestos-related disease, but specifically reserved ruling on the allocation of indemnity and defense costs among Raymark's primary insurers. The insurers appeal, and Raymark cross-appeals.

Initially, we observe that this appeal involves certain issues which are novel to Illinois courts, but which have been grappled with by federal courts around the country. The courts, in determining the obligations of insurance companies with regard to asbestos-related litigation, have offered completely different interpretations of the manner in which virtually identical insurance policies allocate liability among successive insurers and between insurers and insureds. Some of the issues now before this court have been described as "difficult" by one court, "impossible" by another court, and in one judge's words, issues which "will perplex both district and circuit courts until they are resolved by the ultimate appellate authority." (See Lac d'Amiante du Quebec, Ltee. v. American Home Assurance Company (D.C.N.J.1985), 613 F.Supp. 1549, 1551.) With this in mind, we will review the background of the present litigation.

Raymark, formerly known as Rabestos-Manhatten, Inc., manufactures asbestos-containing products. During the past decade, Raymark has been sued by more than 25,000 claimants who allege that they have been injured by exposure to asbestos-containing products manufactured by Raymark. The claims have been brought primarily by individuals who developed one or more of three asbestos-related diseases: asbestosis, mesothelioma and bronchogenia carcinoma. Most of the claimants in the underlying suits allege they were exposed to asbestos during the 1940's, 1950's and 1960's.

Raymark has been insured since 1941 under various comprehensive general liability insurance policies issued by the insurance companies involved as parties in this case. Specifically, the Employers' Liability Assurance Corporation, the predecessor in interest to Commercial Union Insurance Company (Commercial Union), insured Raymark from May 1, 1941, through May 1, 1945, and from February 4, 1947, through February 4, 1950. Between February 1950 and September 1951, Raymark was insured by Globe Indemnity Company (Globe). From September 26, 1951, through September 1967, Raymark was insured by Federal Insurance Company (Federal) and its predecessor in interest, United States Guarantee. Commercial Union insured Raymark from September 1967 through October 15, 1969. Since October 15, 1969, Raymark has been insured by Zurich Insurance Company (Zurich). Northbrook Excess & Surplus Insurance Co. (Northbrook) has issued policies of excess insurance to Raymark since 1976.

In 1978, Zurich filed the present declaratory judgment action against Raymark, Federal and Commercial Union to determine questions of coverage and defense for the asbestos claims filed against Raymark. In February 1979, Northbrook intervened as a plaintiff requesting relief similar to that sought by Zurich. In September 1981, Zurich filed an amended complaint adding Globe as a defendant.

On October 4, 1982, Raymark filed a counterclaim for declaratory judgment against Zurich, Commercial Union, Federal and Globe. Raymark sought a declaration that each of its insurers is obligated to provide indemnity and defense for asbestos-related claims in accordance with their contracts of insurance; a declaration that the insurers in the past had refused in bad faith to fully defend and indemnify Raymark; and such further relief as the court deemed just and proper.

The policies that each of the insurance companies issued to Raymark are nearly identical in terms of coverage language. They provide as follows:

"I. COVERAGE

The (insurance) company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury * * * caused by an occurrence * * *.

Definitions

'Bodily injury' means bodily injury, sickness or disease sustained by any person.

* * *

* * *

'Occurrence' means an accident, including injurious exposure to conditions, which results in bodily injury during the policy period neither expected nor intended from the standpoint of the insured."

Three different theories of coverage have been advanced by the parties during the litigation. The "exposure theory," advocated by Zurich and Northbrook, provides that coverage of asbestos-related claims should be based solely on the claimant's period of exposure to asbestos. If the exposure occurs during the policy period of more than one carrier, the coverage and defense obligations would be apportioned pro rata among the carriers on the risk during any period of exposure. The exposure theory proponents urge that medical evidence shows that bodily injury takes place at or shortly after exposure to asbestos and therefore coverage and defense obligations must be tied to exposure. The exposure theory was adopted first by the Sixth Circuit (Insurance Co. of North America v. Forty-Eight Insulations (6th Cir.1980), 633 F.2d 1212, clarified, 657 F.2d 814, cert. denied (1981), 455 U.S. 1099, 102 S.Ct. 1648, 71 L.Ed.2d 878, and later by the Fifth Circuit (Porter v. American Optical Corp. (5th Cir.1981), 641 F.2d 1128, cert. denied (1981), 454 U.S. 1109, 102 S.Ct. 686, 70 L.Ed.2d 650, and Eleventh Circuit (Commercial Union Insurance Co. v. Sepco Corp. (11th Cir.1985), 765 F.2d 1543.)

Commercial Union and Federal rely on the "manifestation theory." Under this theory, coverage and defense obligations are not triggered until the occurrence insured against has "manifested" itself in such a manner as to be medically detectable and diagnosable. The proponents of this theory assert that the court, in interpreting the policy terms, must focus on the word "disease" rather than bodily injury. They contend that medical evidence from the clinician's standpoint clearly shows that asbestos-related diseases are undiagnosable until an individual has developed recognizable signs or symptoms. The manifestation theory has been adopted by the First Circuit (Eagle-Picher Industries, Inc. v. Liberty Mutual Insurance Co. (1st Cir.1982), 682 F.2d 12, cert. denied (1983), 460 U.S. 1028, 103 S.Ct. 1280, 75 L.Ed.2d 500.)

The third theory of coverage is advanced solely by Raymark and is referred to as the Keene theory, or the hybrid approach. This theory is based on the opinion in Keene Corp. v. Insurance Co. of North America (D.C.Cir.1981), 667 F.2d 1034, cert. denied (1982), 455 U.S. 1007, 102 S.Ct. 1644, 71 L.Ed.2d 875, and provides that coverage under the comprehensive general liability policies is triggered by injury, and that such injury occurs from first inhalation of asbestos through exposure and until clinical manifestation of an asbestos-related disease. Obviously, this theory provides Raymark with the maximum amount of insurance coverage. ¹ More recently, the Keene theory was adopted by the Third Circuit. (ACandS, Inc. v. Aetna Casualty and Surety Co. (3rd Cir.1985), 764 F.2d 968). Accord, Lac d'Amiante du Quebec, Ltee. v. American Home Assurance Co. (D.C.N.J.1985), 613 F.Supp. 1549.

In 1981 an...